All practice questions

Question 9701Question →

A consumer's preferences for Commodity $A$ and Commodity $B$ are illustrated on an indifference map containing multiple indifference curves. When the consumer transitions from a consumption bundle on Indifference Curve $IC_1$ to a bundle on Indifference Curve $IC_2$ located further to the northeast, which of the following best explains why $IC_2$ represents a higher level of satisfaction?

The higher curve contains consumption bundles with larger quantities of at least one good without reducing the quantity of the other.

The marginal rate of substitution remains constant along all points on the higher curve.

The total utility on the lower curve drops to zero as the consumer moves to the right.

The two indifference curves will eventually intersect at the consumer equilibrium point.

Show answer & explanation

Answer: The higher curve contains consumption bundles with larger quantities of at least one good without reducing the quantity of the other.

Answer

The higher curve contains consumption bundles with larger quantities of at least one good without reducing the quantity of the other.

Under standard ordinal utility theory and the assumption of non-satiation (monotonic preferences), consumers prefer more goods to fewer goods. An indifference curve located higher and further to the northeast of another contains bundles with strictly greater quantities of at least one good without reducing the quantity of the other good, thus providing a strictly higher level of total satisfaction.

Step-by-Step Solution

1

Recall the fundamental properties of an indifference map.

Indifference curves positioned further to the right or northeast represent higher levels of utility.

Economic theory assumes monotonic preferences (more of a good is preferred to less).

2

Analyze what moving northeast on a two-good graph implies geometrically.

Moving northeast means increasing the amount of Commodity

A

, Commodity

B

, or both.

Higher quantities of normal goods yield higher total utility.

3

Evaluate the offered explanations against indifference curve properties.

The correct explanation directly links position to bundle composition and non-satiation.

The assumption that consumer preferences are non-satiated means larger bundles provide greater utility.

Key Concept

Indifference Map and Utility Levels

Question 9702Question →

The following macroeconomic indicators (in billions of Naira) were released for an open economy during a given fiscal period:

Macroeconomic Component	Amount (₦ billion)
Household Final Consumption Expenditure ( $C$ )	$400$
Government Final Consumption Expenditure ( $G$ )	$150$
Gross Domestic Fixed Capital Formation	$120$
Increase in Value of Stocks (Inventories)	$30$
Exports of Goods and Services ( $X$ )	$80$
Imports of Goods and Services ( $M$ )	$90$
Net Factor Income from Abroad ( $NFIA$ )	$20$

Using the expenditure method, what is the Gross National Product ( $GNP$ ) at market prices for this economy?

₦670 billion

₦690 billion

₦710 billion

₦890 billion

Show answer & explanation

Answer: ₦710 billion

Answer

The Gross National Product (GNP) at market prices is ₦710 billion.

Under the expenditure approach, national income is measured as

\text{GDP} = C + I + G + (X - M)

. Here, private consumption (

C

) is

400

, government expenditure (

G

) is

150

, total investment (

I

) is

120 + 30 = 150

, and net exports (

X - M

) is

80 - 90 = -10

. Adding these gives

\text{GDP} = 400 + 150 + 150 - 10 = 690

billion Naira. To find

\text{GNP}

, Net Factor Income from Abroad (

20

billion Naira) is added to

\text{GDP}

, yielding

\text{GNP} = 690 + 20 = 710

billion Naira.

Step-by-Step Solution

1

Calculate Total Gross Investment (I)

I = 120 + 30 = 150\text{ billion Naira}

Gross investment consists of Gross Domestic Fixed Capital Formation plus the increase in inventory stocks.

2

Calculate Net Exports (X - M)

\text{Net Exports} = 80 - 90 = -10\text{ billion Naira}

Net exports equal total exports minus total imports.

3

Calculate Gross Domestic Product (GDP) using the expenditure formula

\text{GDP} = C + I + G + (X - M) = 400 + 150 + 150 + (-10) = 690\text{ billion Naira}

The expenditure approach aggregates consumption, investment, government spending, and net exports.

4

Convert GDP to Gross National Product (GNP)

\text{GNP} = \text{GDP} + \text{NFIA} = 690 + 20 = 710\text{ billion Naira}

GNP is derived by adding Net Factor Income from Abroad to GDP.

Key Concept

Expenditure Method of Measuring National Income and GNP Conversion

Estimated Time:1m 30s

Question 9703Question →

Match each specialized financial facility or operational framework on the left with the corresponding international economic organization responsible for its administration on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

The Extended Fund Facility and Resilience and Sustainability Facility match with the International Monetary Fund; the Multilateral Investment Guarantee Agency and ICSID match with the World Bank Group; the Trade Policy Review Mechanism and GATS match with the World Trade Organization; and the African Development Fund concessionary window and High-5s strategic agenda match with the African Development Bank.

Each financial facility and policy tool aligns directly with its governing institution: the IMF oversees short and medium-term balance-of-payments instruments (EFF and RSF); the World Bank Group comprises private investment guarantee and arbitration institutions (MIGA and ICSID); the WTO regulates multilateral trade rules and policy reviews (GATS and TPRM); and the African Development Bank manages regional concessional funding and priority development initiatives (ADF and High-5s).

Step-by-Step Solution

1

Analyze macroeconomic credit facilities (EFF and RSF)

Identify these as medium-term structural balance-of-payments adjustments and climate resilience financing tools administered by the International Monetary Fund.

The IMF's core mandate focuses on financial stability, exchange rate integrity, and resolving macroeconomic external account deficits.

2

Examine investment guarantee and legal arbitration arms (MIGA and ICSID)

Associate political risk insurance and international investor dispute settlement with the specialized branches of the World Bank Group.

These institutions were established specifically within the World Bank Group umbrella to facilitate private capital flows and mitigate non-commercial risk in developing nations.

3

Evaluate global trade policy monitoring and legal rules (TPRM and GATS)

Connect trade policy surveillance reviews and service sector liberalization agreements to the World Trade Organization.

The WTO governs multilateral agreements covering trade in goods, services (GATS), and intellectual property, while monitoring member compliance via the TPRM.

4

Assess regional concessionary funding windows and strategic priority pillars (ADF and High-5s)

Pair the African Development Fund and the High-5s priority targets directly with the African Development Bank.

The AfDB structures its development operations for low-income African economies around the concessional ADF facility and the High-5s operational goals.

Key Concept

Operational mandates, affiliate institutions, and specialized policy instruments of global and regional economic bodies

Question 9704Question →

Which obstacle to economic planning in Nigeria occurs when a new administration abandons or alters the projects established by its predecessor before completion?

Political instability and policy inconsistency

Inability to distinguish between economic growth and economic development

Misunderstanding the structural difference between rolling plans and fixed plans

Confusing the commercialization of public utilities with complete privatization

Show answer & explanation

Answer: Political instability and policy inconsistency

Answer

Political instability and policy inconsistency

Political instability and policy inconsistency describe the disruption of long-term economic planning caused when successive administrations discontinue previously approved development projects.

Step-by-Step Solution

1

Identify the key problem described in the scenario

The scenario highlights the disruption caused when successive governments abandon existing development projects.

Economic planning requires continuity across political regimes to achieve medium and long-term goals.

2

Match the problem to the corresponding planning challenge in Nigeria

This lack of continuity is classified under political instability and policy inconsistency.

Frequent political turnover often results in new leadership discarding previous plans in favor of new priorities, causing plan failure.

Key Concept

Political instability and policy inconsistency as a major challenge to economic planning in Nigeria

Question 9705Question →

Compared to a perfectly competitive market, why does a profit-maximizing monopoly lead to a reduction in consumer welfare?

It restricts output and charges a price that exceeds marginal cost.

It produces at the minimum point of its average total cost curve in the long run.

It sets its price equal to marginal revenue to ensure allocative efficiency.

It eliminates deadweight loss by setting price equal to marginal cost.

Show answer & explanation

Answer: It restricts output and charges a price that exceeds marginal cost.

Answer

A monopoly reduces consumer welfare because it restricts total market output and charges a price that exceeds marginal cost.

A monopoly reduces consumer welfare because it exercises market power to restrict production level below the competitive equilibrium. By charging a price higher than marginal cost (

P > MC

), the monopolist creates deadweight loss, reducing overall consumer surplus.

Step-by-Step Solution

1

Identify the efficiency condition under perfect competition.

In perfect competition, firms produce where price equals marginal cost (

P = MC

), maximizing consumer surplus and total economic welfare.

Allocative efficiency occurs when price reflects the marginal valuation of consumers relative to the marginal cost of production.

2

Analyze the pricing and output behavior of a monopoly.

A monopolist sets output where marginal revenue equals marginal cost (

MR = MC

), but because demand slopes downward, price exceeds marginal cost (

P > MC

).

Market power enables the firm to restrict output to raise prices and maximize economic profit.

3

Evaluate the impact on consumer welfare.

Because output is lower and price is higher under monopoly than under competition, a portion of consumer surplus is lost and deadweight loss is created.

Consumer welfare drops due to under-allocation of resources relative to social optimum.

Key Concept

Monopolistic Inefficiency and Welfare Loss

Estimated Time:45s

Question 9706Question →

A telecommunications company in Nigeria decides to float new shares to the general public to raise funds for expanding its fiber-optic network. Which segment of the capital market handles this initial offering of securities?

Primary market

Secondary market

Money market

Discount house market

Show answer & explanation

Answer: Primary market

Answer

The initial sale of newly issued securities to raise long-term capital takes place in the primary market.

The primary market is the division of the capital market that deals directly with the issuance of brand-new securities. When a corporation offers new shares to the public to raise fresh long-term capital, the transaction takes place in the primary market.

Step-by-Step Solution

1

Identify the type of market based on the duration of capital and nature of issuance

Shares represent long-term ownership capital, which belongs to the capital market rather than the money market.

Floating shares is a long-term capital raising mechanism.

2

Distinguish between primary and secondary market functions

The primary market is where new issues of stocks or bonds are sold to the public directly from the issuing corporation.

Since the company is offering new shares for the first time, it operates in the primary market.

Key Concept

Primary vs Secondary Capital Market Operations

Estimated Time:1m 0s

Question 9707Question →

The table below presents the distribution of daily expenditure on diesel (in $₦\text{'000}$ ) by $40$ micro-enterprises in a commercial hub:

Daily Expenditure ( $₦\text{'000}$ )	Number of Enterprises ( $f$ )
$10 - 19$	$6$
$20 - 29$	$10$
$30 - 39$	$14$
$40 - 49$	$7$
$50 - 59$	$3$

What is the median daily expenditure on diesel for these enterprises?

₦32.36\text{ thousand}

₦32.86\text{ thousand}

₦32.07\text{ thousand}

₦34.50\text{ thousand}

Show answer & explanation

Answer: $₦32.36\text{ thousand}$

Answer

The median daily expenditure on diesel is

₦32.36\text{ thousand}

.

The median of grouped data is computed using the formula

\text{Median} = L + \left(\frac{\frac{N}{2} - F}{f}\right) c

. For this distribution, total frequency

N = 40

, giving a median position of

20

. Cumulative frequency reveals that the median class is

30 - 39

. The lower boundary

L

is

29.5

, the cumulative frequency of preceding classes

F

is

16

, the frequency of the median class

f

is

14

, and the class width

c

is

10

. Substituting these values gives

29.5 + \left(\frac{20 - 16}{14}\right) \times 10 = 32.36\text{ thousand Naira}

.

Step-by-Step Solution

1

Determine total frequency and find the median position

Total frequency

N = 6 + 10 + 14 + 7 + 3 = 40

. Median position

= \frac{N}{2} = \frac{40}{2} = 20^{\text{th}}

item.

The median in grouped data corresponds to the value at the half-way position of total observations.

2

Calculate cumulative frequencies to identify the median class

Cumulative frequencies are

6, 16, 30, 37, 40

. The

20^{\text{th}}

observation lies within the class

30 - 39

.

The cumulative frequency reaches

30

in the

30 - 39

group, which exceeds

20

.

3

Identify class parameters for the median formula

Lower class boundary

L = 29.5

, preceding cumulative frequency

F = 16

, class frequency

f = 14

, class interval width

c = 39.5 - 29.5 = 10

.

Accurate calculation requires continuous boundaries rather than discrete limits.

4

Apply the grouped median formula

\text{Median} = L + \left(\frac{\frac{N}{2} - F}{f}\right) \times c = 29.5 + \left(\frac{20 - 16}{14}\right) \times 10 = 29.5 + \left(\frac{4}{14}\right) \times 10 = 29.5 + 2.857 = 32.357 \approx 32.36

.

Evaluates the linear interpolation within the median class interval.

Key Concept

Calculating median for grouped statistical frequency distributions using class boundaries.

Question 9708Question →

Match each price regulation mechanism or outcome on the left with its appropriate economic definition or market result on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Effective Price Ceiling matches with a maximum legal price set below market equilibrium resulting in a market shortage; Effective Price Floor matches with a minimum legal price set above market equilibrium resulting in a market surplus; Black Market Price matches with an unofficial price higher than the maximum price cap paid by consumers under severe shortages; Buffer Stock Purchases matches with government buying of excess agricultural goods to maintain price supports above market equilibrium.

Each price control policy maps directly to its statutory definition and market outcome: effective price ceilings are binding below equilibrium creating shortages, effective price floors are binding above equilibrium creating surpluses, black markets develop due to price cap shortages, and buffer stock schemes clear surpluses created by agricultural price supports.

Step-by-Step Solution

1

Identify the placement and consequence of a price ceiling.

Effective Price Ceiling is set below market equilibrium price, causing demand to exceed supply and creating a market shortage.

By definition, price ceilings are designed to protect consumers by enforcing a maximum legal price.

2

Identify the placement and consequence of a price floor.

Effective Price Floor is set above market equilibrium price, causing supply to exceed demand and creating a market surplus.

Price floors are designed to protect producer income by setting a legal minimum price.

3

Determine the economic outcome of illegal market trading under price ceilings.

Black Market Price corresponds to illegal trading above the legal cap due to unmet excess demand.

When shortages occur at legal maximum prices, unsatisfied buyers are willing to pay a higher black market rate.

4

Determine government market intervention to support price floors.

Buffer Stock Purchases match government buy-ups of excess market supply generated by price floors.

Without government buying of excess supply, a price floor cannot be sustained in agricultural markets.

Key Concept

Market equilibrium distortions created by government price controls (ceilings and floors)

Question 9709Question →

In the circular flow of income model for a simple two-sector economy comprising households and firms, interactions generate both real flows and money flows between the two sectors. Which of the following correctly identifies a real flow directed from households to firms?

The provision of productive factor services such as land, labor, capital, and entrepreneurship

The payment of factor rewards including wages, rent, interest, and profit

The expenditure on final consumer goods and services produced by business enterprises

The delivery of finished consumer goods and services to households

Show answer & explanation

Answer: The provision of productive factor services such as land, labor, capital, and entrepreneurship

Answer

The provision of productive factor services such as land, labor, capital, and entrepreneurship

In economic theory, real flows consist of physical items rather than monetary transactions. Households provide factor inputs (land, labor, capital, and enterprise) to firms, which makes this specific input supply a real flow originating from households and going to firms.

Step-by-Step Solution

1

Distinguish between real flows and money flows within the circular flow model.

Real flows involve physical transfers of inputs or outputs (goods, services, factor units), while money flows represent financial transfers (incomes, expenditures).

Identifying whether a flow consists of physical items or monetary payment is the first step in classification.

2

Determine the direction of ownership and supply for productive inputs.

Households own factors of production and supply their services to firms for use in production processes.

This physical transfer of land, labor, capital, and managerial skills represents a real flow originating at households and terminating at firms.

Key Concept

Real Flows vs. Money Flows in the Circular Flow of Income

Question 9710Question →

Call Money represents an interbank short-term borrowing facility in the money market that allows commercial banks to lend and borrow surplus funds on an overnight or day-to-day basis to satisfy immediate liquidity reserve requirements.

True

False

Show answer & explanation

Answer: True

Answer

The statement is True. Call Money is an essential money market instrument utilized by commercial banks for interbank overnight borrowing to maintain liquidity and regulatory cash reserve balances.

The statement is accurate because Call Money is a key short-term money market facility that facilitates day-to-day liquidity management between commercial banks.

Step-by-Step Solution

1

Identify the market classification and institutions involved.

Call Money is traded exclusively in the money market among commercial banks and financial intermediaries.

Money markets facilitate short-term debt instruments and immediate liquidity adjustments.

2

Examine the maturity profile and purpose of Call Money.

The borrowing duration ranges from overnight up to 14 days, primarily aimed at resolving temporary cash deficits.

Commercial banks must satisfy central bank statutory cash reserve requirements on a continuous daily basis.

Key Concept

Call Money Market and Interbank Liquidity Management

Question 9711Question →

A solar panel manufacturing company expands its operational scale and factory size over time. Beyond a specific output capacity, the firm encounters managerial bottlenecks, communication inefficiencies, and rising administrative overhead per unit, causing per-unit costs to rise. What economic concept does this upward-sloping section of the Long-Run Average Total Cost (LRATC) curve illustrate?

Diseconomies of scale

The short-run law of diminishing returns

Rising fixed costs associated with larger plant sizes

External localization economies of scale

Show answer & explanation

Answer: Diseconomies of scale

Answer

Diseconomies of scale

The correct answer is diseconomies of scale. When a firm expands its scale of operation in the long run where all inputs are variable, administrative overhead and management coordination difficulties can lead to an increase in long-run average costs per unit of output.

Step-by-Step Solution

1

Distinguish between short-run and long-run economic production horizons

In the long run, all factors of production are variable and there are no fixed costs.

Plant capacity and scale can be fully adjusted in the long run.

2

Analyze the relationship between scale of output and long-run average cost

When long-run average costs increase as output expands, the firm experiences internal scale inefficiencies.

Management difficulties and coordination problems increase per-unit production costs.

3

Identify the corresponding term for rising long-run average total cost

This upward-sloping region of the LRATC curve corresponds to diseconomies of scale.

It reflects decreased efficiency when operating beyond the optimal scale of production.

Key Concept

Long-Run Average Total Cost and Scale Inefficiencies

Question 9712Question →

A consumer's evaluation of total utility derived from consuming successive tubers of yam in a local Nigerian market (expressed in monetary terms) is presented in the table below:

Quantity of Yam (Tubers)	Total Utility (₦)
1	1,800
2	3,300
3	4,500
4	5,400
5	6,000
6	6,300

If the prevailing market price of a tuber of yam is ₦900, what is the total value of consumer surplus (in ₦) enjoyed by the consumer at equilibrium?

Show answer & explanation

Answer: 1800

Answer

The consumer surplus enjoyed by the consumer at equilibrium is ₦1,800.

To find consumer surplus, one must first establish the consumer's profit-maximizing equilibrium quantity where Marginal Utility (MU) equals Price (P). From the Total Utility (TU) values, the MU for successive units is ₦1,800, ₦1,500, ₦1,200, and ₦900. At the 4th unit, MU equals the market price of ₦900. Total utility for 4 units is ₦5,400 and total outlay is

4 \times 900 = \text{₦}3,600

. Subtracting total outlay from total utility yields a consumer surplus of ₦1,800.

Step-by-Step Solution

1

Calculate Marginal Utility (MU) for each unit consumed

MU values are ₦1,800 for the 1st tuber, ₦1,500 for the 2nd, ₦1,200 for the 3rd, ₦900 for the 4th, ₦600 for the 5th, and ₦300 for the 6th tuber.

Consumer equilibrium is reached when the marginal utility of a unit equals its market price.

2

Determine the equilibrium quantity consumed

The consumer purchases 4 tubers of yam.

For the 4th tuber,

MU = \text{₦}900

, which matches the prevailing market price of ₦900. Consuming a 5th tuber yields

MU = \text{₦}600 < \text{₦}900

, which reduces net utility.

3

Calculate the actual total expenditure

\text{Total Expenditure} = 4 \times \text{₦}900 = \text{₦}3,600

.

Total expenditure is equal to the quantity purchased multiplied by the market price per unit.

4

Subtract Total Expenditure from Total Utility to find Consumer Surplus

\text{Consumer Surplus} = \text{₦}5,400 - \text{₦}3,600 = \text{₦}1,800

.

Consumer surplus measures the difference between total willingness to pay (Total Utility at 4 units) and actual expenditure.

Key Concept

Calculation of Consumer Surplus from Discrete Utility Schedules

Question 9713Question →

When the price of a normal good decreases, the total increase in the quantity demanded by a consumer is driven by both the substitution effect and the income effect. Which statement correctly describes how these two effects operate in response to this price reduction?

Both the substitution effect and the income effect work in the same direction to increase the quantity demanded.

The substitution effect increases the quantity demanded, while the income effect reduces it.

The income effect increases the quantity demanded, while the substitution effect reduces it.

The substitution effect causes a movement along the demand curve, while the income effect shifts the demand curve outwards.

Show answer & explanation

Answer: Both the substitution effect and the income effect work in the same direction to increase the quantity demanded.

Answer

Both the substitution effect and the income effect reinforce each other in the same direction to increase the quantity demanded of a normal good when its price falls.

When the price of a normal good falls, two distinct phenomena occur: first, the good becomes relatively less expensive than substitute goods, prompting the consumer to substitute into it (substitution effect increases quantity demanded); second, the consumer's real purchasing power rises, and since it is a normal good, higher real purchasing power induces further consumption (income effect increases quantity demanded). Thus, both effects operate in tandem to raise total quantity demanded.

Step-by-Step Solution

1

Analyze the substitution effect of a price reduction.

As the good becomes relatively cheaper compared to other goods, the consumer substitutes toward this good, increasing quantity demanded.

The substitution effect is always negative with respect to price changes (moving in the opposite direction of price).

2

Analyze the income effect of a price reduction for a normal good.

A lower price increases the consumer's real income (purchasing power). Because the good is normal, higher real income leads to increased consumption of the good.

By definition, demand for a normal good moves in the same direction as changes in real income.

3

Combine the two effects to find the net total price effect.

Both effects reinforce each other, resulting in a net increase in total quantity demanded.

Total Price Effect = Substitution Effect + Income Effect.

Key Concept

Directional Alignment of Income and Substitution Effects for Normal Goods

Estimated Time:1m 0s

Question 9714Question →

An economic study tracks a consumer's purchasing adjustment following an increase in the price of Good X. The findings are summarized in the table below:

Economic Effect	Change in Quantity Demanded
Substitution Effect	$-12$ units
Income Effect	$+15$ units

Based on the data provided, what type of good is Good X, and what is the net change in its total quantity demanded?

Good X is a Giffen good, and its total quantity demanded increases by

3

units.

Good X is a standard inferior good (non-Giffen), and its total quantity demanded decreases by

3

units.

Good X is a normal good, and its total quantity demanded increases by

27

units.

Good X is a normal good, and its total quantity demanded decreases by

15

units.

Show answer & explanation

Answer: Good X is a Giffen good, and its total quantity demanded increases by $3$ units.

Answer

Good X is a Giffen good, and its total quantity demanded increases by 3 units.

The Total Price Effect equation states that

\text{Total Effect} = \text{Substitution Effect} + \text{Income Effect}

. With a price increase, the substitution effect always induces a negative change in quantity demanded (

-12

units). A positive income effect (

+15

units) following a price increase (which lowers real income) identifies Good X as an inferior good. Because the magnitude of this positive income effect (

15

) exceeds the substitution effect (

12

), the total quantity demanded increases by

+3

units. An inferior good whose positive income effect outweighs the negative substitution effect is classified as a Giffen good.

Step-by-Step Solution

1

Calculate Total Price Effect

\text{Total Effect} = \text{Substitution Effect} + \text{Income Effect} = -12 + 15 = +3

units.

The total price effect on quantity demanded is the algebraic sum of the substitution effect and the income effect.

2

Determine Good Classification from Income Effect Direction

Good X is an inferior good.

When the price of a good increases, real income falls. A positive change in quantity demanded (

+15

units) resulting from reduced real income indicates an inferior good.

3

Evaluate Giffen Good Criteria

Good X is a Giffen good because

|\text{Income Effect}| > |\text{Substitution Effect}|

.

When the positive income effect of an inferior good outweighs the negative substitution effect, the total demand curve slopes upward with respect to price, satisfying the definition of a Giffen good.

Key Concept

Decomposition of Price Effect into Substitution and Income Effects for Giffen Goods

Estimated Time:2m 0s

Question 9715Question →

A furniture manufacturing firm operating in the short run produces $20$ wooden dining sets. At this level of output, the firm's Total Cost ( $\text{TC}$ ) is $\text{₦}800,000$ and its Average Fixed Cost ( $\text{AFC}$ ) is $\text{₦}15,000$ per set. What is the firm's Total Variable Cost ( $\text{TVC}$ )?

\text{₦}300,000

\text{₦}500,000

\text{₦}785,000

\text{₦}25,000

Show answer & explanation

Answer: $\text{₦}500,000$

Answer

The firm's Total Variable Cost (TVC) is

\text{₦}500,000

.

Total Cost (TC) is the sum of Total Fixed Cost (TFC) and Total Variable Cost (TVC). To find TFC, multiply Average Fixed Cost (AFC) by quantity (Q):

\text{₦}15,000 \times 20 = \text{₦}300,000

. Subtracting TFC from TC gives

\text{TVC} = \text{₦}800,000 - \text{₦}300,000 = \text{₦}500,000

.

Step-by-Step Solution

1

Calculate Total Fixed Cost (TFC) using Average Fixed Cost (AFC) and total quantity produced (Q)

\text{TFC} = \text{AFC} \times Q = \text{₦}15,000 \times 20 = \text{₦}300,000

Average Fixed Cost is Total Fixed Cost divided by output, so multiplying AFC by Q gives total fixed expenditure.

2

Subtract Total Fixed Cost (TFC) from Total Cost (TC) to determine Total Variable Cost (TVC)

\text{TVC} = \text{TC} - \text{TFC} = \text{₦}800,000 - \text{₦}300,000 = \text{₦}500,000

In the short run, Total Cost consists of Total Fixed Cost plus Total Variable Cost (

\text{TC} = \text{TFC} + \text{TVC}

).

Key Concept

Short-run total cost decomposition (TC = TFC + TVC) and fixed cost relationships (TFC = AFC × Q)

Estimated Time:1m 30s

Question 9716Question →

The government levies a per-unit indirect tax on a manufactured commodity. If the coefficient of price elasticity of demand is $0.25$ and the coefficient of price elasticity of supply is $1.25$ , which of the following statements correctly describes the incidence of the tax?

Consumers bear a greater share of the tax burden than producers.

Producers bear a greater share of the tax burden than consumers.

Producers bear the entire tax burden while consumers bear none.

The tax burden is shared equally between consumers and producers.

Show answer & explanation

Answer: Consumers bear a greater share of the tax burden than producers.

Answer

Consumers bear a greater share of the tax burden than producers.

Tax incidence depends on the relative elasticities of demand and supply. The share of an indirect tax borne by consumers is given by

\frac{E_s}{E_d + E_s}

, while the producer share is

\frac{E_d}{E_d + E_s}

. With

E_d = 0.25

and

E_s = 1.25

, consumers pay

\frac{1.25}{1.50} = 83.3\%

of the tax, and producers absorb

16.7\%

. Therefore, consumers bear a significantly greater share of the tax burden.

Step-by-Step Solution

1

Compare the relative magnitudes of price elasticity of demand (

E_d

) and price elasticity of supply (

E_s

).

E_d = 0.25

and

E_s = 1.25

, which establishes that

E_d < E_s

.

Tax incidence is governed by the relative price elasticities of market demand and supply.

2

Calculate the proportion of the tax passed onto consumers.

Consumer share =

\frac{E_s}{E_d + E_s} = \frac{1.25}{0.25 + 1.25} = \frac{1.25}{1.50} = \frac{5}{6} \approx 83.3\%

.

The consumer burden ratio is proportional to supply elasticity over total elasticity.

3

Calculate the proportion of the tax absorbed by producers.

Producer share =

\frac{E_d}{E_d + E_s} = \frac{0.25}{1.50} = \frac{1}{6} \approx 16.7\%

.

The producer burden ratio is proportional to demand elasticity over total elasticity.

4

Determine which group bears the greater share.

Since

83.3\% > 16.7\%

, consumers bear the greater share of the tax burden.

The less elastic side of the market absorbs the larger share of an indirect tax.

Key Concept

Tax Incidence and Price Elasticity of Demand and Supply

Question 9717Question →

In W. Arthur Lewis's dual-sector development model for labor-surplus economies, what primary mechanism drives continuous expansion and capital accumulation within the modern industrial sector?

Reinvesting the profits earned by industrial capitalists while keeping urban wages tied to the agricultural subsistence rate

Reallocating government tax revenue away from public infrastructure into rural agricultural subsidies

Shifting national economic policy from three-year rolling plans to long-term fixed perspective plans

Restricting consumer imports through high tariffs to protect domestic consumer goods industries

Show answer & explanation

Answer: Reinvesting the profits earned by industrial capitalists while keeping urban wages tied to the agricultural subsistence rate

Answer

The modern sector expands through the reinvestment of capitalist profits generated by transferring disguisedly unemployed agricultural workers to industry at a constant subsistence wage.

W. Arthur Lewis postulated that in dual economies with unlimited supplies of labor, the modern capitalist sector grows because urban wages remain low and constant (tied to rural subsistence). This enables capitalists to capture a substantial surplus (profit), which is continuously reinvested into capital equipment to hire more workers, driving capital accumulation.

Step-by-Step Solution

1

Identify the core assumption of the Lewis Dual-Sector Model.

The model assumes a traditional rural sector with zero marginal productivity of labor (disguised unemployment) and a modern urban industrial sector.

This labor surplus creates an elastic supply of labor available to the industrial sector.

2

Determine how industrial capitalists generate economic surplus.

Industrial employers hire workers at a constant wage rate slightly above agricultural subsistence levels, keeping labor costs low while output increases.

Low wage costs relative to productivity create a high profit share (capitalist surplus) for industrial firms.

3

Analyze how sustained industrial expansion occurs.

Capitalists reinvest their profits into new capital equipment, increasing the demand for labor and repeating the reinvestment cycle until the agricultural labor surplus is exhausted.

Continuous profit reinvestment serves as the primary engine of capital accumulation and structural transformation.

Key Concept

W. Arthur Lewis Dual-Sector Model of Development

Question 9718Question →

A solar panel manufacturing company increases all of its production inputs—factory space, machinery, and labor—by $25\%$ . Consequently, its total output of solar panels increases by $15\%$ . At the same time, the chief financial officer argues that the firm cannot lower its unit costs further because fixed capital overhead costs cannot be varied in the long run. Which of the following correctly identifies the firm's returns to scale and evaluates the officer's cost argument?

The firm is experiencing decreasing returns to scale, and the officer is incorrect because all inputs and costs are variable in the long run.

The firm is experiencing increasing returns to scale, and the officer is correct because fixed overhead costs remain constant across all time horizons.

The firm is experiencing decreasing returns to scale, but the officer is correct because plant capacity constitutes a fixed cost in both short-run and long-run analysis.

The firm is experiencing constant returns to scale, and the officer is incorrect because fixed costs diminish to zero automatically as output expands.

Show answer & explanation

Answer: The firm is experiencing decreasing returns to scale, and the officer is incorrect because all inputs and costs are variable in the long run.

Answer

The firm is experiencing decreasing returns to scale, and the officer is incorrect because all inputs and costs are variable in the long run.

The correct answer identifies that the firm operates under decreasing returns to scale because output expands by

15\%

, which is less than the

25\%

proportional increase in all inputs. It also correctly refutes the officer's argument by applying the fundamental economic principle that all inputs—and therefore all costs—are variable in the long run.

Step-by-Step Solution

1

Calculate the ratio of output change relative to input change to determine returns to scale.

Proportional change in inputs =

+25\%

. Proportional change in output =

+15\%

. Since

\% \Delta \text{Output} < \% \Delta \text{Inputs}

(

15\% < 25\%

), the firm experiences decreasing returns to scale.

Returns to scale measure how output responds when all inputs are scaled simultaneously by a given proportion.

2

Evaluate the financial officer's statement regarding fixed costs in the long run.

The officer's assertion that capital overhead costs cannot be varied in the long run is economically incorrect.

By definition, the long run is a time horizon long enough for a firm to vary all factors of production. Consequently, there are no fixed costs in the long run; all costs are variable.

Key Concept

Long-Run Production and Returns to Scale

Question 9719Question →

Match the following non-bank financial intermediaries with the specific financial services or products they provide in the economy:

Click a left item, then click its matching right item

Show answer & explanation

Answer

Mortgage Finance Institutions match with providing specialized loan facilities for real estate; Insurance Companies match with risk underwriting and financial indemnity; Discount Houses match with discounting short-term treasury and commercial bills; Hire Purchase Companies match with financing durable goods through periodic installment payments.

Each non-bank financial intermediary fulfills a distinct economic role: Mortgage Institutions provide housing credit, Insurance Companies underwrite risk, Discount Houses manage money market bill liquidity, and Hire Purchase Companies fund asset acquisition via installment plans.

Step-by-Step Solution

1

Analyze the primary economic function of each listed non-bank financial institution.

Distinguish the operational mechanisms between housing finance, risk pooling, money market discounting, and asset installment financing.

Non-bank financial intermediaries perform specialized credit and financial mediation functions without issuing demand deposits or operating cheque accounts.

2

Pair each non-bank financial institution on the left with its corresponding specialized service on the right.

Link Mortgage Institutions to real estate lending, Insurance Companies to indemnity/risk pooling, Discount Houses to bill discounting, and Hire Purchase Companies to installment asset acquisition.

Each intermediary targets a distinct credit segment or financial need within the broader financial framework.

Key Concept

Specialized Functions of Non-Bank Financial Intermediaries

Question 9720Question →

In a given fiscal year, a nation recorded a Nominal Gross Domestic Product (GDP) of $\text{₦}600\text{ billion}$ while its GDP deflator stood at $150$ . Calculate the Real GDP of the nation for that year in billions of Naira.

Show answer & explanation

Answer: 400

Answer

The Real GDP of the nation for that year is ₦400 billion.

Real GDP isolates physical output change from price fluctuations by dividing Nominal GDP by the price level index (GDP deflator) and scaling by the base value of 100. Substituting ₦600 billion and 150 gives

\frac{600}{150} \times 100 = 400

billion Naira.

Step-by-Step Solution

1

Identify the relationship between Nominal GDP, Real GDP, and the GDP Deflator.

The formula to adjust Nominal GDP for price inflation is

\text{Real GDP} = \left( \frac{\text{Nominal GDP}}{\text{GDP Deflator}} \right) \times 100

.

The GDP deflator measures the level of prices relative to the base year.

2

Substitute Nominal GDP (₦600 billion) and GDP Deflator (150) into the equation.

\text{Real GDP} = \left( \frac{600}{150} \right) \times 100 = 4 \times 100 = 400

.

Dividing Nominal GDP by the GDP deflator strips out the price increase to reflect physical output quantity.

Key Concept

Adjustment of Nominal GDP to Real GDP using the price index/deflator.

Estimated Time:45s

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